Tóm tắt Luận án Impact of equity, credit risk on financial stability of Vietnamese commercial banks
MINISTRY OF EDUCATION AND TRAINING
THE STATE BANK OFVIETNAM
BANKING UNIVERSITY OF HO CHI MINH CITY
MAI BINH DUONG
IMPACT OF EQUITY, CREDIT RISK ON FINANCIAL
STABILITY OF VIETNAMESE COMMERCIAL BANKS
SUMMARY OF DOCTORAL THESIS
Major: Finance - Banking
Code: 62.34.02.01
Academic advisor: Assoc. Prof. Dr. Nguyen Ngoc Thach
HO CHI MINH CITY - 2017
CHAPTER 1: INTRODUCTION
1.1. The urgency of the subject
The commercial banks bring into play a very important role for each economy,
contributing to attracting capital and providing loans. Business activities of
commercial banks must always ensure stability, safety and profitability. Along with
capital markets through the stock market, the money market through the banking
system is the place to provide capital to the economy. With active mobilization of
temporary idle funds in all organizations, individuals, all economic sectors
(temporarily idle capital released from the production process, from the source of
savings of the population ... ) through commercial credit, commercial banks have
provided capital for the economy, fully meet the timely reproduction process.
Thanks to the operation of the commercial banking system, especially the credit
business, enterprises have the conditions to improve their business activities,
contributing to improving the efficiency of the whole economy. Therefore, we can
assert that the main subject to meet capital needs for business activities is
commercial banks. In addition, commercial banks are tools to regulate the macro
economy. In the operation of the market economy, the operation of commercial
banks if effective will really become an effective tool for the State to regulate the
macro economy. Through credit and payment activities between commercial banks
in the system, commercial banks have contributed to expanding or reducing the
amount of money in circulation. Moreover, by granting credits to the economy,
commercial banks carry out the flow of money, gather and divide the capital of the
market effectively. Thus, stabilization of the commercial banking system plays an
important role in the financial system of Vietnam.
Since the financial crisis of 2008-2009, many experts have been interested in
studying financial instability that could lead to bankruptcy in many areas such as
Altman (1968), Altman & GCG (1977) ), Zavgren (1985). Particularly in the
banking sector there are researchs by Boyd & Graham (1986), De Nicolo (2000),
Hesse & Cihak (2007), Soedarmono & ctg (2011), Rahman & ctg (2012), Fu & ctg
(2014), Chiaramonte & ctg (2015), Strobel (2015). These studies find the impact of
many factors on the financial stability of commercial banks. However, an issue that
is being debated is the impact of equity and credit risk on the financial stability of
commercial banks. In theory, equity plays an important role for a bank. Equity funds
not only finance the bank's investments but also help banks to be proactive in their
business operations, increasing their competitive capacity and securing their
credibility. In addition, the theory also shows that credit risk occurs will affect
immediately earnings of commercial banks. Since then, affecting the business
activities of commercial banks, creating instability.
Some studies by Furlong and Keeley (1989), Keeley (1990), Van and Roy (2003),
Jacob Oduor et al. (2017) show that equity helps reduce risk and increase stability.
Finance of banks. On the other hand, empirical studies have also shown that the
credit risks faced by banks with loans have led to the bank's loss of liquidity and
forced banks to bankruptcy. This result is also supported by recent research by Björn
Imbierowicz and Christian Rauch (2013).
In Vietnam, since the crisis of 2008-2009, the banking system of Vietnam has been
gradually recovering due to its active efforts in dealing with bad debts of each bank
in particular and the Government in general. Looking back at the instability of the
Vietnamese banking system over time, equity and credit risk play an important role.
Therefore, it can be said that, in the current context of Vietnam, the consideration
of the impact of equity, credit risk on the financial stability of banks is necessary,
especially in the mid-crisis period. by. Because determining the level and direction
of the impact of equity, credit risk on the financial stability of banks will help to
develop sound and sustainable banking governance policies. Starting from the
above, the topic "Impact of equity, credit risk on financial stability of Vietnamese
commercial banks" is necessary.
1.2. Gap in research
Based on the results of the empirical study, which will be presented in the next, the
research expects to fill some of the research gaps:
Firstly, based on prior research, research has focused on both the impact of equity
and credit risk on the financial stability of commercial banks. However, the research
goes in two different directions: the first one examines the effect of equity on the
financial stability of commercial banks such as Jacob Oduor et al. (2017), Aggrawal
et Jacques ( 2001); Rime (2001); Godlewski (2004); Hakenes and Schnabel (2010);
Abba et al. (2013); Vu Thi Hong (2015); Le Thanh Ngoc et al. (2015) ... the second
direction of studying the impact of credit risk on the financial stability of
commercial banks Björn Imbierowicz and Christian Rauch (2013); Beck & ctg
(2009); Consuelo Silva Buston (2012). Domestic research studies to measure the
impact of both equity and credit risk on the financial stability of Vietnamese
commercial banks are limited.
Second, the theories of research on the impact of equity on the financial stability of
banks reveal many contradictions. In the first place, the theory is that increasing the
equity will reduce profits, thereby reducing the financial stability of the bank. This
view is rooted in the debate surrounding the capital structure theory of Modigliani
and Miller (1958). Modigliani and Miller (1958) argue that capital structure does
not affect the value of the business. Secondly, higher equity will allow banks to
make better choices in their businesses while at the same time better controlling
credit activity, thereby increasing bank financial stability (Jensen and Meckling,
1976). These theories show that the direction of the impact of equity on the bank's
financial stability over time, and the likely impact of equity to The financial stability
of Vietnamese commercial banks is non-linear and inverted U. This implies that
increasing the equity ratio could help increase the financial stability of Vietnamese
commercial banks but only to a certain extent. If the equity ratio exceeds this level,
the increase in equity can reduce the financial stability of Vietnamese commercial
banks due to the decrease in business performance. Equity ratio at the point of
reversing the financial stability of Vietnamese commercial banks is the optimal ratio
of equity, at which the financial stability of Vietnamese commercial banks is the
highest. . A study to prove this non-linear impact exists and find optimal equity
thresholds that will increase the financial stability of Vietnamese commercial banks.
Third, in the context of the global financial crisis that took place in 2008 and 2009,
the economies of many countries were sharply reduced. In Vietnam, the world
economic crisis has also been affecting a lot: on the stock market, foreign investors
have the ability to recover capital and sell securities. Hence, it will negatively affect
foreign exchange reserves and stock market prices. Exports will decline, which both
affects the balance of international payments, trade deficit; It has also increased
labor force loss, negative impact on the labor market; The real estate market will
tend to stagnate and this market downturn will negatively affect other markets.
Some banks have lost their liquidity and withdraw their credit, which makes it
difficult for businesses to access the capital market; Increasing interest rates,
increasing capital costs, thus affecting business operations (Dinh Son Hung, 2010).
Empirical studies by Consuelo Silva Buston (2012); Jacob Oduor et al. (2017) found
that, under the influence of the economic crisis, the impact of equity and credit risk
on bank financial stability was altered. However, there are no studies in the country
that compare the impact of equity and credit risk on the financial stability of
Vietnamese commercial banks during and after the crisis. The global financial crisis
took place between 2008 and 2009.
These theories show that the direction of the impact of equity on the bank's financial
stability over time, and the likely impact of equity to The financial stability of
Vietnamese commercial banks is non-linear and inverted U. This implies that
increasing the equity ratio could help increase the financial stability of Vietnamese
commercial banks but only to a certain extent. If the equity ratio exceeds this level,
the increase in equity can reduce the financial stability of Vietnamese commercial
banks due to the decrease in business performance. Equity ratio at the point of
reversing the financial stability of Vietnamese commercial banks is the optimal ratio
of equity, at which the financial stability of Vietnamese commercial banks is the
highest. . A study to prove this non-linear impact exists and find optimal equity
thresholds that will increase the financial stability of Vietnamese commercial banks.
Third, in the context of the global financial crisis that took place in 2008 and 2009,
the economies of many countries were sharply reduced. In Vietnam, the world
economic crisis has also been affecting a lot: on the stock market, foreign investors
have the ability to recover capital and sell securities. Hence, it will negatively affect
foreign exchange reserves and stock market prices. Exports will decline, which both
affects the balance of international payments, trade deficit; It has also increased
labor force loss, negative impact on the labor market; The real estate market will
tend to stagnate and this market downturn will negatively affect other markets.
Some banks have lost their liquidity and withdraw their credit, which makes it
difficult for businesses to access the capital market; Increasing interest rates,
increasing capital costs, thus affecting business operations (Dinh Son Hung, 2010).
Empirical studies by Consuelo Silva Buston (2012); Jacob Oduor et al. (2017) found
that, under the influence of the economic crisis, the impact of equity and credit risk
on bank financial stability was altered. However, there are no studies in the country
that compare the impact of equity and credit risk on the financial stability of
Vietnamese commercial banks during and after the crisis. The global financial crisis
took place between 2008 and 2009.
1.3. Objectives of the study.
The study has a general purpose of assessing the impact of equity, credit risk on the
financial stability of Vietnamese commercial banks, based on the results of research
to propose solutions, A proposal to increase the financial stability of Vietnamese
commercial banks. In addition, with the expectation of filling the research gap in
Vietnam, the study also conducted: (i) examine whether or not the existence of non-
linear effects of equity on financial stability of The Vietnamese commercial bank
and, if so, find the optimal equity threshold at which the level of financial stability
of Vietnamese commercial banks is highest and (ii) compare the impact of the equity
capital ratio risk and credit risk to the financial stability of Vietnamese commercial
banks during and after the global financial crisis in 2008-2009.
To achieve the overall goal, the thesis focuses on addressing the following specific
objectives:
- Measuring the financial stability of Vietnamese commercial banks in the
period of 2008 - 2016;
- Studying the direction of the impact of equity capital, credit risk on the
financial stability of Vietnamese commercial banks;
- Measure and evaluate the impact of equity, credit risk on the financial
stability of Vietnamese commercial banks;
- Check whether or not the existence of non-linear impact of equity on the
financial stability of Vietnamese commercial banks and, if so, find the
optimal equity threshold at which the degree of financial stability Vietnam's
commercial banks are the highest
- Comparison of changes in the ratio of equity and credit risk to the financial
stability of Vietnamese commercial banks during and after the global
financial crisis in 2008-2009. .
Based on the results of research and proposals on solutions and proposals to increase
the financial stability of Vietnamese commercial banks.
1.4. Research question
To achieve these objectives, the thesis responds to the following questions:
- How was financial stability of commercial banks in Vietnam in the period 2008 -
2016?
- What are the implications of equity, credit risk to the financial stability of
Vietnamese commercial banks?
- What is the impact of equity, credit risk on the financial stability of Vietnamese
commercial banks?
- Is there a non-existent impact of equity on the financial stability of Vietnamese
commercial banks? And if so, what is the optimal threshold of equity in which the
level of financial stability of Vietnamese commercial banks is highest?
- How is the impact of equity and credit risk on the financial stability of Vietnamese
commercial banks during and after the global financial crisis in 2008-2009?
- In order to increase the financial stability, what commercial banks in Vietnam
should implement solutions and recommendations?
1.5. Object and scope of the research
Research subjects: impact of equity, credit risk on financial stability of Vietnamese
commercial banks.
Scope of research: research conducted in 24 joint stock commercial banks in
Vietnam. The study wanted to cover all of Vietnam's commercial banks. However,
because the data used to calculate the variables in the research model was derived
mainly from the audited financial statements, data collection is limited. The audited
financial statements of commercial banks are mostly available only from 2008
onwards. Therefore, the author selected the study period from 2008 to 2016 with 24
commercial banks in Vietnam. Besides, due to the topic of reviewing the 2008-2009
financial crisis period, it is appropriate to select the period from 2008 to 2016 by
considering the 2008-2009 crisis.
1.6. Data and research methods
Research data
Research using micro data of 24 commercial banks in Vietnam. Source of data: Data
is collected from reliable sources such as: State Bank of Vietnam, General Statistics
Office of Vietnam (GSO), Annual financial report of 24 commercial banks in
Vietnam.
Research Methods
The author uses a quantitative method based on studies by Björn Imbierowicz and
Christian Rauch (2013), Jacob Oduor et al. (2017) to model the effects of equity,
credit risk to the financial stability of commercial banks in Vietnam using Stata
software with Panel Data data.
Estimation methods for table data such as Fixed Effects, Random Effects, Feasible
General Least Square (FGLS) for engraving This phenomenon.
In addition to the above estimation methods, the study also regression models using
the SGMM method for table data.
1.7. Scientific contribution of the research topic
❖ Theoretically
Research on the methodology of equity and credit risk and the financial stability of
banks and analyze the impact of equity and credit risk on financial stability. The
bank is linked to the context of the world financial crisis and its impact on the
banking system in the country.
❖ Methodically
First, the author assessed the effects of equity, credit risk on the financial stability
of Vietnamese commercial banks by quantitative research method with the support
of Stata 12.0 software. Use table data with Random Effects and Fixed Effects. Test
Hausman to choose between Random Effects and Fixed Effects. The author uses the
Feasible General Least Square (FGLS) method to overcome self-correlation or
variance across entities if they exist. In addition, the estimation by the System
General Method of Moments is also used to ensure that the results are reliable.
Second, the study also opened the door for further research. The author's study uses
the quantitative model of the impact of equity, credit risk on financial stability in
Vietnamese commercial banks. Further studies may further expand this study in two
directions by expanding the breadth or depth of the study. In terms of depth, further
research could increase sample size in other countries and regions such as ASEAN,
Asia, ... and use other quantitative measurement tools to test the impact of equity,
credit risk on financial stability in commercial banks. In terms of breadth, further
studies may examine the impact of other factors on the financial stability of
Vietnamese commercial banks such as liquidity risk, financial management, ratio
capitalization, profit, ...
❖ Practical meaning
Firstly, based on the study by Jacob Oduor et al. (2017), Björn Imbierowicz and
Christian Rauch (2013), ..., the study uses the econometric models that measure the
magnitude of impact the combination of both equity and credit risk to the financial
stability of Vietnamese commercial banks. Estimates show that the regression
coefficients of equity variables and credit risk are statistically significant. This
suggests that the increase in equity will increase the financial stability of
Vietnamese commercial banks and the increased credit risk will reduce the financial
stability of Vietnamese commercial banks. This is an empirical contribution
supplemented by empirical research in the country that is very limited in research
on this subject.
Secondly, the results of the study are empirical evidence of the direction of the
impact of equity on the financial stability of the bank over time, the results of the
study examining the relationship between the two This variable shows that the
impact of equity to asset ratio (EQTA) on the financial stability of Vietnamese
commercial banks is non-linear and inverted U. This implies that the increase in the
ratio of equity to total assets (EQTA) could help to increase the financial stability
of Vietnamese commercial banks but only to a certain extent. If the ratio of equity
to total assets (EQTA) exceeds this level, the increase in equity may reduce the
financial stability of Vietnamese commercial banks due to the decreased business
performance. . The ratio of equity to total assets at the point of reversing the
financial stability of Vietnamese commercial banks is the optimal ratio of equity to
total assets, where at this level the financial stability of Vietnamese commercial
banks is the highest.
Third, the study points to the effects of the financial crisis on bank financial stability,
the statistically significant 5% statistically significant and negative, indicating that
in a crisis situation increasing the volatility of Vietnamese commercial banks. In
addition, the study also shows the specific impact of equity on the financial stability
of commercial banks under the influence of crisis conditions: in times of crisis, the
increase in equity ratio The total assets will increase the volatility of Vietnamese
commercial banks.
Fourthly, besides looking for evidence on the impact of credit risk on bank financial
stability, the study also looked at this impact in the context of the financial crisis in
2008 and 2009. The regression results show that the regression coefficient of the
crisis variable is statistically significant at 5% and the negative sign indicates that
in the context of crisis, the adverse effect of credit risk on stability The increase in
the NPL ratio on total outstanding loans will reduce the financial stability of
Vietnamese commercial banks when other factors remain unchanged. , this is
consistent with the results of previous studies of countries around the world.
Finally, through the estimation results of the regression model, the author has
proposed capital management and credit risk management for Vietnamese
commercial banks in order to increase financial stability of commercial banks.
1.8. Structural thesis.
To achieve the objectives of the study, excluding the table of contents, the list of
acronyms, the list of tables, the list of references, and the annex, the thesis is
designed into five chapters, including The main contents are as follows:
- Chapter 1: Introduction
- Chapter 2: Theoretical bases on the impact of equity and credit risk on the financial
stability of commercial banks.
- Chapter 3: Research Methods and Data
- Chapter 4: Results of Study on the Impact of Equity and Credit Risk on Financial
Stability of Vietnamese Commercial Banks.
- Chapter 5: Conclusions and solutions to enhance financial stability of Vietnamese
commercial banks.
CHAPTER 2: THEORETICAL MECHANISM OF THE IMPACT OF
OWNERSHIP AND CREDIT RISK WITH THE FINANCIAL STABILITY
OF COMMERCIAL BANKS.
2.1. The theory of equity of commercial banks
2.1.1. The concept of equity of commercial banks
For commercial banks, basically, in the narrow sense, equity is money that
shareholders, owners contribute (capital actually contributed) to enjoy the bank's
income in the future. In broad terms, bank equity is viewed as the capital of the
banker for supporting banking operations. Such definitions include the bank's
reserve funds and are referred to as the capital of the shareholders. Throughout the
course of operations, equity can accumulate up or down. However, for state
managers, the issue of the adequacy of bank capital is crucial, especially after the
global financial crisis has made one of the solutions that governments of some
countries Used to rescue the banking system is to rescue and nationalize, using
government funds to save the collapse of banks.
2.1.2. Owners' equity of commercial banks
2.2. Credit risk theory at commercial banks
2.2.1. Credit risk concept
Credit risk is the potential loss that may occur as a result of customers not being
able or able to fulfill their obligations fully or on time as committed. Credit risk is
the likelihood of an unexpected difference between actual and expected returns, the
full amount of principal and interest that results in financial loss ie a decrease in net
income and a reduction in net income. market value of capital. Among the types of
risks to banking operations, CIs most often face credit risks. When the credit risk
occurs, the credit institution will not be able to recover fully and on time the credit
granted because the customer fails to pay all debts to the credit institution as
committed, for whatever reason. causing damage to CIs, causing loss of capital and
impaired ability to pay and ability to pay debts.
2.2.2. Credit risk classification
According to Rose (2012), based on the underlying causes of risk, credit risk is
divided into transaction and portfolio risk
Transaction risk consists of three main components: risk, risk, and operational risk.
Portfolio risk: a form of credit risk that is caused by limitations in the management
of a bank's loan portfolio, is divided into two categories: internal and collective risk.
Medium.
2.2.3. Measurement of credit risk at commercial banks
Credit risk measurement in credit activities is the calculation of the specific number
of risk that the bank is facing and the losses it causes. There are many methods to
measure credit risk, some typical methods include:
Credit risk measurement based on reserve (Bangladesh Bank, 2010).
Estimation of credit losses is based on the Internal Basis II (IRB) database.
Due to the difficulty of data collection, the credit risk in this study was calculated
by the credit risk measurement based on the reserve level. As such, the ratio of bad
debt to total outstanding loans will be used by the author to represent credit risk.
2.3. Theoretical basis on financial stability of commercial banks
2.3.1. The concept of financial stability
2.3.2 The concept of financial stability of banks
The financial stability of commercial banks is achieved when the banks operate
smoothly, not affected by the current and future unwanted agents, which are firmly
supported by economic shocks. The financial stability of banks may be interrupted
by the operation of internal financial factors and strong shocks leading to
vulnerabilities. Shocks can come from the external environment, macro factors, the
role of creditors and debtors in banks, policies or changes in the institutional
environment ... Any impact Shocks to vulnerabilities can lead to the collapse of
commercial banks and disrupt banking intermediaries and intermediaries. To be
more serious, it can lead to financial crisis and the implications for the economy.
2.3.3. The importance of banking and financial stability
2.3.4. The measure of financial stability of the bank
Finding a way to measure the financial stability of the banking system and
anticipating instability that could lead to bankruptcy is always one of the top
concerns of researchers. financial sector. Historically, many methods have been
developed to do this, such as:
Method for measuring financial stability by Merton model
Method for measuring stability by CAMEL model
The method of measuring financial stability by Z-score
2.4. The theory of the impact of equity on the financial stability of banks
Debates on the impact of equity on the financial stability of banks have recently
formed two theoretical perspectives on this impact (Thakor, 2014).
2.4.1. The theory of increasing equity reduces the bank's financial stability
The first theoretical view is that increasing equity will reduce profits thereby
reducing the bank's financial stability. This view is rooted in the debate surrounding
the capital structure theory of Modigliani and Miller (1958). Modigliani and Miller
(1958) argue that capital structure does not affect the value of the business.
However, this conclusion is only true in perfect market conditions and in reality this
is unlikely. De Nicolo & Turk Ariss (2010) argue that capital is one of the inputs to
the bank's operations. The increase in customer deposits in total capital, ie, the
reduction in the equity ratio of total assets, will help increase the business capital
for the bank to improve profitability thereby increasing the stability. the bank's
financial position. Huang and Ratnovski (2009), based on OECD data, found no
relationship between bank capital and business performance. In other words, it is
impossible to conclude with certainty that bank capital will always extend financial
stability.
2.4.2. The theory of increasing equity increases the financial stability of the
bank
The second theoretical view that higher equity will enable banks to make better
choices in their businesses while at the same time better controlling credit
performance, thereby increasing financial stability. Bank. This theoretical view
supports the role of equity in the financial stability of banks in three respects
(Matten, 1996).
2.5. Theory of the impact of credit risk on the financial stability of banks
Credit risk affects the probability of bank default, which reduces the bank's financial
stability in three ways:
First, the risk of undermining the credibility of a bank, a big risk bank, is a bank that
does not operate effectively.
Second, Berger, AN, and partner (1997), Boyd, J. H, and cs. (1988), Salas, V., and
cs. (2002) show that the risk of insolvent partially bank The reason is that the risky
credits make repayment difficult, while the deposits and savings of the people still
have to pay on time, while not mobilizing capital. Due to the loss of prestige, so the
withdrawers see the situation of the Bank as the withdrawal of more money,
resulting in difficulties in the payment phase, resulting in financial instability.
Commercial banks.
Third, according to Cai, J., and partner (2008), He, Z., and partner (2012), Eklund,
T and partner (2001), Dermine, J. (1986). Blair and partner (1978), the risk that
results in declining returns due to the risk of financial loss.
The explanation of the impact of credit risk on the bank's financial stability is
considered by the author through this transmission effect. Some of the theoretical
explanations for this effect may be as follows: Asymmetric Information Theory,
Representation Theory.
2.6. Overview of related studies
2.6.1. Studies use the Z-score to measure the financial stability of commercial
banks
The use of Z-scores to measure the financial stability of commercial banks has
attracted many domestic and foreign researchers. Studies such as Boyd & Partner
(2006), Soedarmono & partner (2011), Rahman & gcg (2012).
Local researches include Nguyễn Đăng Tùng & Bùi Thị Len (2015), Hoàng Công
Gia Khánh & Trần Hùng Sơn (2015).
2.6.2. Studies on the impact of equity on the financial stability of commercial
banks.
International studies on the impact of equity on the financial stability of commercial
banks can be cited as: Aggrawal and Jacques (2001), Rime (2001), Godlewski
(2004) ), Aggrawal and Jacques (2001), Abba et al. (2013), Jacob Oduor et al.
(2017).
Domestic studies on the impact of equity on the financial stability of
commercial banks include Vũ Thị Hồng (2015), Lê Thanh Ngọc and partner (2015),
Hoàng Công Gia Khánh and Trần Hùng Sơn (2015), Nguyễn Minh Hà & Nguyễn
Bá Hướng (2016).
2.6.3. Studies on the impact of credit risk on the financial stability of
commercial banks
Studies on the impact of credit risk on the financial stability of commercial banks
are relatively few. These include Beck & GCG (2009), Consuelo Silva Buston
(2012). The first study examining the impact of credit risk on the financial stability
of commercial banks is the study by Björn Imbierowicz and Christian Rauch (2014).
CHAPTER 3: METHODOLOGY AND RESEARCH DATA
3.1. Research process
Diagram 1: Research Process
3.2. Research Methods
3.2.1. Measure the financial stability of commercial banks
Inheritance of the Z-score calculation method for the banks of Boyd & Graham
(1986), Hannan & Hanweck (1988), Boyd & partner (1993), this study calculates
the Z-score for Banks are as follows:
푅푂퐴푖푡 + 퐸푄푇퐴푖푡
푍푠푐표푟푒푖푡 =
훿푅푂퐴
푖푝
푍푠푐표푟푒푖푡 is the Z-score measures the bank's financial volatility in year t
푅푂퐴푖푡 is the return on total assets of bank i in year t, calculated as the after-tax profit
divided by total assets.
퐸푄푇퐴푖푡 is the ratio of equity to total assets of bank i in year t, calculated by the
average equity divided by the total average assets.
훿푅푂퐴 is the standard deviation of the bank's ROA during the study period p.
푖푝
3.2.2. Model and hypothesis
3.2.2.1. Research models
Based on the study by Jacob Oduor et al. (2017), the authors use models
demonstrating the impact of equity on the financial stability of Vietnamese
commercial banks under different research conditions. . Specific research models
are as follows:
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐸푄푇퐴푖,푡 + 훽2퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽3퐿푇퐷푖,푡 + 훽4푅푂퐸푖,푡 +
훽 퐶푅퐸푖,푡 + 훽6퐺퐷푃 + 훽7퐼푁퐹 + 휖푖 (1)
푖,푡
푖,푡
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐸푄푇퐴푖,푡 + 훽2퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽3퐿푇퐷푖,푡 + 훽4푅푂퐸푖,푡 +
훽 퐶푅퐸푖,푡 + 훽6퐺퐷푃 + 훽7퐼푁퐹 + 훽8퐸푄푇퐴2 + 휖푖 (2)
푖,푡
푖,푡
푖,푡
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐸푄푇퐴푖,푡 + 훽2퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽3퐿푇퐷푖,푡 +
훽4푅푂퐸푖,푡 + 훽 퐶푅퐸푖,푡 + 훽6퐺퐷푃 + 훽7퐼푁퐹 + 훽8퐾퐻푈푁퐺퐻푂퐴푁퐺푖,푡 + 휖푖 (3)
푖,푡
푖,푡
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽2퐿퐿푃 + 훽3퐿푂퐴푁푇퐴푖,푡 + 훽4퐶퐼푅푖,푡 +
푖,푡
훽 푅푂퐸푖,푡 + 훽6퐺퐷푃 + 훽7푁푃퐿푖,푡 + 훽8퐼푁퐹 + 휖푖 (4)
푖,푡
푖,푡
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽2퐿퐿푃 + 훽3퐿푂퐴푁푇퐴푖,푡 + 훽4퐶퐼푅푖,푡 +
푖,푡
훽 푅푂퐸푖,푡 + 훽6퐺퐷푃 + 훽7푁푃퐿푖,푡 + 훽8퐾퐻푈푁퐺퐻푂퐴푁퐺 + 훽9퐼푁퐹 + 휖푖 (5)
푖,푡
푖,푡
ln푍푠푐표푟푒푖,푡 = 훽0 + 훽1퐵퐴푁퐾푆퐼푍퐸푖,푡 + 훽2퐿퐿푃 + 훽3퐿푂퐴푁푇퐴푖,푡 +
푖,푡
훽4퐶퐼푅푖,푡 + 훽 푅푂퐸푖,푡 + 훽6퐺퐷푃 + 훽7푁푃퐿푖,푡 + 훽8푁푃퐿푖,푡 × 퐾퐻푈푁퐺퐻푂퐴푁퐺 +
푖,푡
훽9퐼푁퐹 + 휖푖 (6)
푖,푡
Table 3.1. Synthesis of variables in the research model
Expectations
Variable name
Symbol
Measure
about
accents
Dependent variable
푙푛푍푠푐표푟푒푖푡
푅푂퐴푖푡 + 퐸푄푇퐴푖푡
Financial
stability
lnZscorei,t
= ln(
)
훿푅푂퐴
푖푝
Independent variables
Equity ratio of
Equity
EQTA
+
-
Total assets
total assets
NPL ratio of
total
Nonperforming loans
Total loans
NPLi,t
BANKSIZEi,t
LTD
outstanding
loans
The size of the
bank
Logarithm (Total assets)
-
Ratio of total
outstanding
loans to total
deposits
Total loans
-
Total deposits
Provision for
credit losses
Lending rate on
total assets
Loan loss provisions
Total loans
LLP
+
+/-
+
i,t
Total loans
Total assets
LOANTAi,t
Net profit on
total equity
Net income
Equity
ROE
The ratio of
operating
Operating expenses
Net operating income
expenses to net
operating
CIR3.2
-
income
Total loanst − Total loanst−1
Total loanst−1
Credit growth
Growth of GDP
Inflation rate
CRE
GDP
INF
-
+
-
GDP − GDP
t
t−1
GDP
t−1
CPIt − CPIt−1
CPIt−1
3.2.2.3. Research hypothesis
The author makes the following assumptions:
Hypothesis H1: The ratio of equity to total assets is positively correlated with the
financial stability of the bank.
Hypothesis H2: the effect of the ratio of equity on total assets to the bank's financial
stability is nonlinear.
Hypothesis H3: The higher the ratio of bad debt to total outstanding loans, the lower
the financial stability of the bank.
Hypothesis H4: The impact of the financial crisis on the financial stability of
negative banks.
Hypothesis H5: In the context of financial crisis, the negative impact of credit risk
on the financial stability of the bank will increase.
3.3. Collect and process data
❖ Sample size
In principle, the sample size must be at least 5 times the number of variables in the
model (Nguyễn Đình Thọ, 2011). The empirical model contains at most 10
variables, so the minimum sample size is 50 observations. With the table data
consisting of 24 commercial banks collected from 2008 to 2016, the sample
consisted of 9 x 24 = 216 observations and met compliance requirements. Over time,
this data is the balance sheet data.
❖ Data collection and processing
Secondary data on the variables in the research model are collected by the author
from reliable sources, namely:
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